India’s textiles sector is one of the oldest industries in Indian economy dating back several centuries. India’s overall textile exports during FY 2017-18 stood at US$ 39.2 billion in FY18 and is expected to increase to US$ 82.00 billion by 2021.
The Indian textiles industry is extremely varied, with the hand-spun and hand-woven textiles sectors at one end of the spectrum, while the capital-intensive sophisticated mills sector at the other end of the spectrum.
The Gems and Jewellery sector plays a significant role in the Indian economy, contributing around 7 per cent of the country’s GDP and 15 per cent to India’s total merchandise exports.
India is deemed to be the hub of the global jewellery market because of its low costs and availability of high-skilled labour. India is the world’s largest cutting and polishing centre for diamonds, with the cutting and polishing industry being well supported by government policies.
SRKA & COMPANY and our team provides an intellectual response that meets the assurance, taxation, regulatory or transaction advisory needs of the client. Our expert and focused team anticipates market trends, identify industry risks and their implications to develop a relevant solution.
- Textile Mills
- Textile Distributors
- GEMS Manufacturer
- Jewellery Manufacturer
- Jewellery Distributors at International Level.
Major Fiscal Incentives for Textile Industry
Various fiscal incentives are provided by the Government of India for promoting investment in the Textile sector. Some of the key incentives are outlined below:
Impact of GST on Textile Industry
It is expected that the tax rate under GST would be higher than the current tax rate for the textile industry. Natural fibers (cotton, wool) which are currently exempt from tax, would be taxed under GST. Despite this, the textile industry as a whole would benefit from the introduction of GST due to following changes-:
- Break in input credit chain
A significant portion of the textile industry in India operates under the unorganized sector or composition scheme, thus creating a gap in flow of input tax credit. Input tax credit is not allowed if the registered taxpayers procure the inputs from composition scheme taxpayers or the unorganized sector. GST would enable a smoother input credit system, which would shift the balance towards the organized sector.
- Reduction in manufacturing costs
GST is also likely to subsume the various fringe taxes like Octroi, entry tax, luxury tax etc. which would help reduce costs for manufacturers in the textile industry
- Input credit allowed on capital goods
Currently, the import cost of procuring the latest technology for manufacturing textile goods is expensive as the excise duty paid is not allowed as input tax credit. Whereas under GST, there will be input tax credit available for the tax paid on capital goods.
Export of textile products to get a boost
GST would streamline the process of claiming input tax credit thus allowing the textile industry to be more competitive in the export market. The same opinion is shared by the secretary of ITF (Indian Texpreneurs Federation) Prabhu Dhamodharan.
*Official website of ITF -: http://www.itf.org.in
Currently, manufacturers/traders are not inclined towards exports due to the extensive procedure costs and delays made in the processing of duty drawback.
Under GST, the system of duty drawback will lose its significance. Input tax credit will be provided as a refund under GST instead of current duty drawback schemes. This would be a significant boost for promoting the export of textile products.
Export promotion capital goods scheme is available for all the cotton-based textile exporters. Under this scheme, exporters can claim the exemption for duty paid if they export six times the value of duty within a period of next six years. It is expected that this scheme would lose its significance under GST.
The government can support the Indian textile manufacturers by taking measures like swift execution of FTA with UK, EU and USA, remove cap on benefit under the TUF scheme in order to encourage large scale projects, bring relaxation in labour laws, improve infrastructure and provide plug and play mega textile zones near port cities to enhance textile export, and introduce an alternative to MEIS to provide level playing field for Indian exporters. The government can facilitate financing against government receivable from banks at benchmark rates with low margin of say 10% without any restriction on the tenor/aging